EU's Barroso warns Europe not to derail fragile recovery

Reuters Staff

3 Min Read

* Barroso says investors still lack confidence in the euro zone

* Commission chief calls on governments to keep up reforms

By Claire Davenport

STRASBOURG, France, Sept 11 (Reuters) - European Commission President Jose Manuel Barroso called on the EU on Wednesday to cement its fragile economic recovery even as an emergence from crisis reduces pressure to act, saying political upheaval was still the biggest risk.

Giving his annual “State of the Union” speech to the European Parliament since the euro zone’s debt crisis has dramatically calmed, Barroso warned against complacency when unemployment is at a record level and urged “constancy”.

“Make no mistake -- there is no way back to business as usual,” he told the parliament in Strasbourg. “Some people believe that after this, everything will go back to the way it was before. They are wrong. We will not go back to the ”old“ normal, we have to shape a ”new“ normal.”

The euro zone returned to growth in spring of this year after its longest ever recession brought on by the debt and banking crisis that nearly broke the currency bloc apart.

“The recovery is within sight. This should push us to keep up our efforts ... We owe it to our 26 million unemployed,” he said. “With a fragile recovery, the biggest downside risk I see is political.”

Pressure for action has receded across European capitals since European Central Bank President Mario Draghi promised to do whatever it takes to save the euro zone last year.

From France to Portugal, the painful reforms demanded by the Commission, the EU executive, are meeting resistance, as politicians shy away from tough issues such as dealing with insolvent banks, challenging the special interests of unions.

Upheaval in Portugal in July, when the country’s finance minister resigned unexpectedly, reminded officials and investors of the dangers of instability in southern Europe and the challenges for Greece, Ireland, Portugal and Cyprus.

European plans for a banking union and closer fiscal ties to withstand future crises risk being watered down too.

Barroso, whose term ends next year, tried to counter some of that reticence, warning that financial markets were still not fully convinced that Europe had put its problems behind it.

“In this phase of the crisis, a government’s job is to provide certainty and predictability that markets still lack,” Barroso said. “Over the last years we have seen that anything that casts doubt on a government’s commitment to reform is instantly punished.”